The Moral Basis of Stakeholder Theory

Kevin Gibson

Stakeholder theory is an important and commonly used framework for business ethics. Several of the most popular business ethics and business and society texts such as Archie Carrolls Business and Society: Ethics and Stakeholder Management (1993) and Joseph Weisss Business Ethics: A Managerial, Stakeholder Approach (1994) rely on the concept. In the past two years, over two hundred articles on stakeholder theory have appeared in philosophical and business journals.1 In this paper I will examine the claim that businesses should consider the interests of stakeholders, and question whether there is a moral basis for that claim. I will point out three approaches to stakeholder theory: prudence, agency, and deontological views. Of these, deontology has offered the strongest arguments for a normative stakeholder approach. However, on examination it turns out that deontology in this context relies on an embedded notion of corporate personhood. When this is made explicit, it both underwrites duties to some, but not all, stakeholders, and provides a way to distinguish between competing stakeholder claims.

Stakeholder theory Donaldson and Preston (1995) have recently distinguished between descriptive, instrumental, and normative approaches to stakeholder theory. The descriptive tells whether stakeholder interests are taken into account, whereas the instrumental approach is concerned with the impact stakeholders may have in terms of corporate effectiveness. The normative approach deals with the reasons why corporations ought to consider

stakeholder interests even in the absence of any apparent benefit. Traditional theories of the firm asserted that the primary function of the corporation is to maximize the return on investments to the owners of the business, that is, the shareholders (Friedman, 1970). In contrast, stakeholder theory asserts that the business needs to consider the interests of groups affected by the firm. Stakeholders are those groups or individuals with whom the organization interacts or has interdependencies and any individual or group who can affect or is affected by the actions, decisions, policies, practices or goals of the organization (Carroll, 1993, p. 60). By this analysis, stakeholders have the potential to help or harm the company. Commentators in this tradition have made a distinction between primary and secondary stakeholders. Primary stakeholders are those who have a formal, official, or contractual relationship, and all others are classified as secondary stakeholders (Carroll, 1993, p. 62). Managers still need to consider the interests of secondary stakeholders, though, since they have the latent potential to significantly affect the firm. So, for instance, an environmental group could target a corporation for its use of excessive packaging or practices which lead to the destruction of the rain forest. The secondary stakeholder may thus quickly emerge as an actor capable of influencing whether the corporation is effective. The implication is that a stakeholder is any individual or group with power to be a threat or benefit. Kenneth Goodpaster classifies this kind of approach as strategic since a firm has certain strategic objectives, and stakeholders need to be considered since they have the potential to help

Journal of Business Ethics 26: 245257, 2000. 2000 Kluwer Academic Publishers. Printed in the Netherlands.

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Kevin Gibson her no less saintly for many of her admirers. We can remain agnostic about our fates on some imagined judgement day, and still believe that acting on the principle that there will be one is morally worthy. To translate this into claims about the stakeholders: there is little scientific evidence that shows whether or not acting well is ultimately in the companys best financial interest. Certainly apocryphal claims abound. The classic case is Johnson & Johnson, which in 1982 pulled 31 million bottles of capsules of Tylenol from the market when it was found that someone had spiked a few with cyanide. Seven people died of the poisoning, but it looked like the contamination had taken place in the store, and was thus localized and beyond the corporations control. Their reaction was open, public, and costly more than $50 million. The company kept the product name, developed a safety seal and regained its market share within a short period. So it seems that being ethical could have a beneficial impact on the bottom line. It may be objected at this point that it is also apparently true that the bad prosper. For instance, although Ford may have acted badly in the Pinto affair, and Exxon probably failed to be a moral exemplar in the Valdez tanker crash in Alaska, neither company has been badly hurt in the long run. This is not counter-evidence, but merely counter-hypothesis. There are a tremendous number of confounds in trying to prove the reconciliation thesis one way or another such as working out how long a run to consider or learning what effects may have future significance. Thus, an instrumental stakeholder approach has two elements. First, a true accounting of what is in the firms best interest all things considered should lead to a very wide ranging and comprehensive analysis. For instance, the mention of the Pinto still carries negative connotations for Ford some thirty years after the incidents, and somehow an accurate accounting should note that potential effect. Perhaps this is only possible from the view of the eternal. But it is effectively how many moral individuals live their lives acting as if their every action might have wide-ranging effects, all things considered

or harm the corporation in its effort to achieve them. Thus, a strategic manager will analyze a course of action by looking at the threat or potential benefit posed by various stakeholder groups (Savage et al., 1991). In one sense, at least, the stakeholder analysis builds on shareholder analysis, since it is a more elaborate model of the appropriate considerations to determine what actions will be instrumental in making the firm more effective, and private corporations still largely gauge effectiveness in terms of maximizing shareholder returns.

The reconciliation thesis It is common to dismiss the instrumental approach of business as lacking a moral component. In Goodpasters view, for example, strategic thinking leads to the elimination of ethics in favor of prudence (Goodpaster and Holloran, 1994, p. 428) that is, self-interested acts will necessarily be less than truly ethical ones. The reconciliation thesis, on the other hand, states that firms can do good at the same time as they do well, in effect, that there is no necessary discontinuity between self-interest and morality, and that moral behavior is consistent with rational prudence. It has a robust history from the time of Plato, and has effective modern philosophical proponents (e.g., Smith, 1853; Butler, 1726, 1950; Foot, 1958; Kavka, 1991) Indeed, we can use the Platonic example to illustrate the fact that many people restrain themselves from acting badly because of an abiding belief that they will be judged after death for their present actions. The truth of that belief need not be the issue, since the salient point is that a large proportion of the population act as if it were true that their actions were subject to divine scrutiny. Moral theories in the Kantian tradition would likely say that these actions are not pure, in the sense that the individuals are ultimately acting from a prudential motive. Yet it would seem odd to discount their actions as amoral merely because of this prudential component. It is entirely possible that Mother Teresa did her good works motivated by an unstated hope for heavenly rewards, yet this would make

The Moral Basis of Stakeholder Theory as best they can be that is, acting as if God is watching everything we do. The second element is that it does not actually matter whether the reconciliation thesis is true or not. What matters more is that it could be true, and that in the absence of proof one way or another, companies ought to act as if it were true.2 The upshot is that we should not automatically reject instrumentalism as amoral, since many decisions may have an ethical underpinning. Of course, I have not provided a full argument for the reconciliation thesis here. Still, I believe that the initial claim that businesses need to consider the interests of stakeholders could be underwritten from a prudential point of view, and we should acknowledge at least the possibility that morality and prudence, if not identical, may often be coextensive. 3 Hence, there is some grounding for an argument to the effect that working toward strategic objectives, properly understood and accounted for, may require both instrumental and moral considerations.

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extrapolated to deal with conflicts between the principles or prescriptive advice about which stakeholders merit consideration. Additionally, despite their claim that, Instrumentalist ethics . . . is unsound ethics [and] logically inadequate, we find that the principles are described in terms of their ultimate benefit to the firm that is, their instrumental value. The reasoning used in these claims is akin to Bowies arguments against relativism, and serves to show that business needs some moral foundation (Bowie, 1996). However, the argument cannot go far beyond that initial claim, and is insufficient to warrant any positive duties to stakeholders. The second view is espoused by Kenneth Goodpaster (1991), who advocates that business should adopt a view that synthesizes the strategic and multi-fiduciary approach. As he puts it:
The foundation of ethics in management . . . lies in understanding that the conscience of the corporation is a logical and moral extension of the consciences of its principals. It is not an expansion of the list of principals, but a gloss on the principal-agent relationship itself.5

Agency A second way of looking at corporate responsibility to stakeholders proposes that a business has a fiduciary duty to them. In the same way that a business owes special and particular duties to its investors (the principal-agent relation), the argument goes, it also has different duties to the various stakeholder groups. The claims fall into two main types.4 The first version is a hybrid of prudential and non-prudential ethics. The claim, typified by Quinn and Jones (1995), is that for business to operate at all it must incorporate four ethical principles; those of avoiding harm to others; respecting the autonomy of others; avoiding lying; and honoring agreements. So, behind a standard principal-agent view there has to be a foundation of accepted moral (and not necessarily legal) agreements. I have considerable sympathy with this view, which seems essentially correct. Accepting that business practice is consonant with certain ethical principles is straightforward, and will constrain some dubious practices. Yet it is difficult to see how this basic claim could be

He acknowledges that implementation is difficult and concludes:

Once we understand that there is a practical space for identifying the ethical values shared by a corporation and its stockholders a space that goes beyond strategic self-interest but stops short of impartiality the hard work of filling that space can proceed.6

Goodpaster has been influential, and the notion of a corporation with a conscience has caught the imagination. Still, it is important to parse his claim closely. In effect, Goodpasters project contends that businesses may have responsibilities beyond those to stockholders. But beyond that minimal claim, he relies on the conscience of the company as if it is that of the manager, writ large, so to speak. The problem that is left unsolved is that the manager may not be a good soul anyway (and therefore imports those moral failings into the workplace), and even if he or she is, it is possible the manager adopts a different role morality when at work idiomatically, a

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Kevin Gibson conforms to an appropriate moral obligation: It is not wrong to act instrumentally, for example, to give blood because one believes in an institution which may ultimately result in benefit to the self, but it is a much higher good to give altruistically without that sense of personal gain or satisfaction. One of the chief architects of deontological theory was Immanuel Kant. (Kant, 1785) Kant believed that individuals had equal moral worth in that they were capable of independently deciding right from wrong and acting accordingly. Hence, we need to respect people as ends in themselves and we are devaluing them if we treat them merely as instruments or exclusively as means to an end. Furthermore, the litmus test for ethical behavior is that we should act in such a way that we would have all moral agents act; the resulting judgment takes on the full weight of a moral law and is termed the categorical imperative. In its most basic form, then, a deontological approach demands that we treat people either in their role of employees or consumers as more than mere tools in maximizing profits. In a reduction-in-force, the so-called rightsizing of surplus overhead (i.e., people) would need to take account of the fact that those people will be affected in significant ways and perhaps there is a moral duty to afford some dignity and respect to workers who may be laid off. Freemans book Strategic Management: A Stakeholder Approach (1984) was seminal in the field, and it is instructive to see the development of his theory over the last fifteen years. Originally he claimed:
My thesis is that I can revitalize the concept of managerial capitalism by replacing the notion that managers have a duty to stockholders with the concept that managers bear a fiduciary relationship to stakeholders. Stakeholders are those groups who have a stake or claim on the firm. Specifically I include suppliers, customers, employees, stockholders, and the local community, as well as management in its role as agent for these groups . . . Each of these stakeholder groups has a right not to be treated as a means to some end, and therefore must participate in determining the future direction of the firm in which they have a stake.8

different hat. If we staff our businesses with individuals who are trained and rewarded solely as profit maximizers, it would take a very morally strong and courageous manager to guide the company to benefit stakeholder interests. In both cases agency theory gives us a baseline for saying that businesses should not be driven by immediate benefit to stockholders alone. However, this framework does not give an adequate justification for saying that businesses have anything but duties of minimal consideration to other stakeholders. It fails to flesh out any details of how we could fill this moral space in either a prescriptive or taxonomic way.

Deontological claims Many writers have implied or asserted that businesses should properly look after stakeholders even if it is not profitable. So we find that Carrolls introduction says:
To appreciate the concept of stakeholders, it helps to understand the idea of a stake. A stake is an interest or share in an undertaking . . . A stake is also a claim. A claim is an assertion to a title or a right to something.7

Thus, stakeholder approaches not only have a descriptive element about the nature of the firm and its relations to others, but often they involve an implicit or explicit moral claim to the effect that the corporation has duties to others, even in the absence of potential benefit. Yet the moral basis for these rights or obligations is often asserted rather than argued for. Where the claim is made, it is usually on a deontological basis, and so I will look at the forms that it takes. One of Freeman and Evanss earlier articles has the subtitle Kantian Capitalism which reflects this approach (1988). Here the treatment of employees is seen as under the umbrella of how moral agents should normally treat each other, generally in deontological terms based on respect for persons, notions of obligations to others, or rights. Deontology is derived from the Greek word meaning duty. It is a theory that looks to the moral motives rather than any particular outcome (Broad, 1930). An act is right in that it

The Moral Basis of Stakeholder Theory The argument actually takes the form that: P1 P2 P3 P4 P5 There are groups identifiable as stakeholders. These groups have interests. The interests have been protected by legislation. Entities with recognized interests have rights. Rights-holders have legitimate claims and obligations.

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ensures a basic equality among stakeholders in terms of their moral rights as these are realized in the firm.9

He incorporates what is in fact Rawlss difference principle, to the effect that inequalities are acceptable only in so far as they benefit a representative member of the least well-off stakeholder. This effectively gives us another premise, to the effect: P6 Rights holders are entitled to a degree of equality which results in maximum fairness to all right holders.

Therefore: C Businesses have duties to stakeholders.

In a later paper, Freeman moves away from the interest/rights analysis to a contemporary deontological framework associated with John Rawls (1971). Rawls suggests that we can work out, at least in an abstract and provisional way, what principles and moral paradigms are correct by engaging in a theoretical exercise where we know the basic facts of the world, but we are ignorant of our place in it. Under these circumstances (and following Rawls) Freeman believes that rational people would devise a moral theory that maximizes fairness of opportunity for all and an equal distribution of societal resources unless an unfair distribution would make at least someone better off without harming others. It is a deontological theory in that it is centrally dependent on the Kantian conception of equality. In effect, this theory says you should act as you would have others do, and behave as if you could be in the shoes of the other party. It is also a contractarian theory in that it supposes that we can develop adequate moral theory by imagining a hypothetical social contract, where the participants freely agree to a set of foundational principles. The contract then becomes the benchmark of justice, since the only just principles and acts are those which conform to it. As a result, Freeman (1997) claims that businesses should behave as moral agents who have the luck to be in a position of power. He says:
The normative core for this redesigned contractual theory will capture the liberal idea of fairness if it

Donaldson and Prestons defense of normative approach is also based on a similar social contract view and involves a positive claim to the effect that:
managers should acknowledge the validity of diverse stakeholder interests and should attempt to respond to them within a mutually supportive framework, because that is a moral requirement for the managerial function.10

Three difficulties Stakeholder theory, at least in its normative form, relies on a sophisticated version of deontology. There are three key elements in the claims: i) Businesses have positive duties to stakeholders based on stakeholder interests; ii) Stakeholder groups are distinct from individuals; and, iii) Duties are owed to stakeholders equally. Let us now examine them in turn:

i. Positive duties It is easy to concede that stakeholders are worthy of respect in virtue of their humanity. Still, there needs to be a definitive link between the notion that they have an interest in the well-being of the firm and the demand that they have a say in shaping its future. So, for example, when Donaldson says, the validity of diverse stakeholder interests, the term interest equivocates between meaning that stakeholders have both

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Kevin Gibson will entail a duty on the part of another. But this is not always true; as Feinberg (1970) has noted, there are imperfect obligations, too. In Beauchamps words:
obligations of charity, obligations to be kind to animals, obligations of love, and obligations of conscience do not seem to confer correlative rights. You cannot claim another persons love or charity as a matter of right.12

needs and wants which may be satisfied by the other party. Hence, customers have an interest in obtaining good value items at the best possible price, and employees have an interest in job security. It is not clear, though, that having an interest in this sense is sufficient to generate duties, nor is it evident that the duty of the corporation extends from the threshold level of fulfilling the needs of its stakeholders to the level of accommodating their wants. A powerful argument could be made, I believe, to the effect that businesses should accommodate basic rights, like those to safe goods, a clean environment, and protection from racism at work. Indeed, these are the sorts of interests that legislation has protected, and those to which Evans and Freeman (1988) appeal in order to prompt their analysis. So in their earlier formulations they cite legislation like the Equal Pay Act of 1963 and the Clean Air Act and say:
We have argued that the result of such changes in the legal system can be viewed as giving some rights to those groups that have a claim on the firm, for example, customers, suppliers, employees, local communities, stockholders and management.11

However, even if we grant the historical fact that there has been a legal recognition of basic rights, that in itself need not extend to a demand to satisfy their particular wants. Consequently, it may be true in a limited sense that the right of consumers to safe goods will determine the actions of the firm (Freeman, 1984). Freemans justification for the claims of stakeholders is based on the legal codification of basic rights to certain groups. But not all rights are of equal status, and, hence, stakeholder interests may not always prevail against contrary market forces merely because they are right-based. Freemans early analysis links the firms duties to stakeholders on the basis of rights, yet his argument only goes far enough to support fundamental rights to stakeholders. Another way of putting this point is that not all rights imply duties. In many cases there is a direct reciprocal correlation between rights and obligations. These are sometimes termed perfect obligations in which a claim based on a right

In short, the fact that groups may make claims does not automatically make them legitimate, and the basis of the claim will determine whether the firm has an obligation to meet that claim. Given that the framework for the discussion is rooted in the interests of stakeholders, the basis will be stronger the more that it appeals to basic human rights, and this may lead to the sorts of obligations noted by Donaldson (1989) in his work on the morality of firms in international business. The stakeholder claim is thus more perfect, so to speak, when dealing with the deprivation of subsistence than it would be with a more supererogatory claim like notice of future closings. However, Freemans earlier arguments do not support the claim that a firm has a moral obligation to generally consider all stakeholder claims.

ii. Duties to groups A second element in stakeholder analysis is that groups are the locus of moral activity; for example, consumers, employees, communities, and so forth. Certainly, a deontological analysis will apply to individuals, and individuals make up groups. There is no objection then if stakeholder names are just a convenient shorthand way of describing many particular individuals. If we abandon the overlay of stakeholder theory, the analysis of corporate responsibility ironically becomes more straightforward: the individuals who make the key decisions in the firm have to consider their duties to the individuals who might be affected, and one way to do that would be to ask the Kantian question of how they would react if other firms made similar decisions.13 Deontology, as we have seen, is depen-

The Moral Basis of Stakeholder Theory dent on the interaction of moral agents who are intrinsically valuable because of their autonomy. Furthermore, individual moral agents act for better or worse with other individuals. The problem is brought into focus if we assert that the firm has a responsibility to stakeholder groups, since the individuals who make up those groups may be double counted, or be treated differentially. Take the case of a corporation which is faced with the choice between two water-treatment systems: Both satisfy present legal requirements. One is more expensive and allows less pollution into the water. Under a shareholder analysis, the corporation should do whatever maximizes profits. Under a stakeholder analysis, all stakeholder interests need to be considered. Yet the same individual could be a shareholder, employee, community member, and consumer. These are groupings that may have distinct interests from those of the individuals who make them up. In effect, there would be no basis for stakeholder theory unless there is an implicit notion of group interests, since otherwise a generic claim like, business should look after the interests of people, would be selfsufficient by itself. Talk about stakeholder groups like consumers, communities and employees would be mere redundancy. Stakeholder analysis, then, implies that a group has a different identity and different characteristics from its members. Therefore, in order to make stakeholder theory fully workable we need to supplement the usual account with a theory of corporate personhood. There are standard accounts of corporate personhood which have dealt mainly with issues of moral blameworthiness, for example, whether it is legitimate to say that a corporation, say, Exxon, was responsible for the Exxon Valdez disaster over and above the responsibility of particular individuals. Taking this kind of position means that members of an organization may not shield themselves by claims to role morality. It also allows moral culpability when there is a corporate culture that permitted such action to take place even in the absence of finding a guilty individual. What, then, does it take to consider a group as sufficient to regard it as a moral agent? The

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issue distills into the question whether there is some feature about a group that would distinguish it as a candidate for moral agency. In other words, what separates this working notion of a group from a mob, or collection of individuals acting from their own volition? Peter Frenchs answer to this question is to look to the organizational structure to see if it has what he terms a Corporate Internal Decision Procedure, or CID (French, 1979, 1984). This is most clearly seen in the case of a publicly held business, which typically will have a mission statement, written policies, and a set form for making decisions which supersede those of any one individual. In the case of a car rental firm, say, the customer agent has a clear set of guidelines as to how to deal with the client, and whether he or she may be offered particular rates or upgrades. The agent then is acting in role on behalf of the company, and knows the limits of his or her discretion. It would make sense to say, then, that the customer was offered a discount by Hertz, the company, rather than by Ms. Jones, the worker. French extends this insight into the moral sphere, so that for better or worse a corporation may be said to make decisions that mean the company can be praiseworthy or blameworthy. One example is that Union Carbide (the corporation) is morally responsible for the disaster at Bhopal. However, a weaker notion of moral standing will suffice for our purposes, since it is only necessary to show that stakeholders are, in effect, quasi-persons (that is, sufficiently like moral agents) to have moral standing. Frenchs argument requires two conditions for moral agency: identity and intentionality. Moral culpability (or praiseworthiness) is not always dependent on intentionality, though. For instance, manslaughter is a lesser moral harm than murder, to be sure, yet it is still condemned. Similarly, recent legal rulings in the U.S. have held a firm liable in sexual harassment cases based on its environment or culture, rather than looking at whether there was any malicious intent.14 Hence, a company that allows sexually explicit calendars, or blue jokes, is accountable for the discomfort that may be engendered. We can extend this reasoning to say that it is sufficient for moral purposes that a corporate body has an identifi-

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Kevin Gibson his personal moral beliefs. In this, and less dramatic cases, the individual surrenders a degree of autonomy to an organization. Werhane then takes this to be the basis for an argument for reciprocal duties by the organization. Significantly, she could not do this unless the group or corporation is a vehicle for moral decisionmaking, independent of any particular constituent.16 Developing this element will help underwrite stakeholder obligations. Essentially, whenever an individual delegates moral authority, perhaps by adopting a role morality, then the organization will become a moral actor. This would naturally apply to businesses, but it might equally well work when individuals take on other roles, say, the role of union member, or environmental activist. Given this analysis of businesses and other groups as candidates for moral agency, there are two significant implications for deontological stakeholder theory. First, the scope of corporate responsibility is limited to dealing with other moral agents. Secondly, arguments for moral partiality will apply to stakeholder theory. Recall that deontological stakeholder theory has embedded assumptions about the duties of certain groups to others. I contend that it is plausible for an identifiable corporate agent to have duties both to other such agents, and to individual human agents. However, it makes no sense to say that an agent has duties to groups over and above the individuals who compose them unless the group can be identified as a credible entity in and of itself. Given the analysis of corporate personhood, the likely qualifications for consideration are (i) a discernable corporate disposition or culture, and (ii) continuity which would survive changes in membership. To illustrate, let us return to a corporation which supplies goods and services to the public. A typical normative stakeholder approach will say that the corporation has duties to every group touched by the institution and its product. (Again, such groups could include suppliers, consumers, the local community and employees.) It ought to treat all those groups as moral equals, apparently balancing their various demands and concerns with no prevalent guiding principle. As we have seen, this approach fails to provide

able culture involving certain dispositions. Thus, if there is a prevalent atmosphere of delivering pizza within a certain time window without regard for the consequent pressure to drive less cautiously, then we can hold the company responsible should there be an increase in accidents, even in the absence of a written corporate policy or identifiable policy maker. This approach allows us to deal with moral culpability when it is impossible to identify a particular individual who did wrong even though there is a prevailing culture which fosters unethical acts. For a group to have moral standing, then, it needs to have a culture which will survive the coming and going of any one person, and whether written or not, there will be a continuing spirit, or set of shared understandings, which identify the group (Gibson, 1995). A stakeholder group with discernible values would be an appropriate candidate for moral consideration over and above the individuals who make it up. As stated, this is a very weak demand, which certainly could be fulfilled by football supporters who espouse certain convictions and wear identifiable apparel. It would not apply, however, to any and all groups. Supermarket customers, for instance, would belong to an identifiable group, but would fail even the minimum tests set out above. The notion that stakeholder groups are discrete moral actors is stengthened when we draw on arguments framed by Werhane (1985). Werhane has tackled the problem of the moral duties of corporations with specific reference to the relationship between the firm and the employee. Her analysis is largely based on the way in which the individual may act as a corporate agent. The agent, similar to Frenchs rental car employee, will make decisions and act according to established corporate policies to further the interests of the corporation. Hence, the employee will act at work in a role. She notes that some roles are strongly differentiated, where professional obligations outweigh or override personal moral considerations.15 So, she notes, when Lockheed president Carl Kotchian agreed to pay 12 million dollars in pledge money to secure a deal in the 1970s he had severe personal qualms but felt that his role as president was more important than

The Moral Basis of Stakeholder Theory anything but the most general moral guidance and is susceptible to the double counting problem. If, on the other hand, we are explicit in employing the assumption about agents dealing only with other morally considerable entities, then the corporation clearly has a duty to all the individuals with whom it deals. But it only has to deal with stakeholder groups in so far as those groups themselves are agents. In this case, a union is a good example, as it has a structure and identity that are sufficient to warrant consideration in addition to dealing with its members individually. The same may be said of other groups such as a consumer group (like the Consumers Union in the U.S.A.) which has a definite mission statement and affiliation, or environmental group like Greenpeace. Importantly this is a limited list with a distinct membership, as opposed to the open-ended demand which requires us to consider every possible stakeholder group (for example, customers generally).

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times when one group will benefit at the expense of others. In general, however, management must keep the relationships among stakeholders in balance. When these relationships become unbalanced, the survival of the firm is in jeopardy.18

iii. Partiality Once we have established that stakeholder theory relies on a notion of corporate personhood, it will allow us to make morally important distinctions about how we treat them. As a practical matter we do treat different people differently, and I will suggest that this is a philosophically respectable thing to do under certain conditions. Deontology in both its Kantian and Rawlsian versions employs a central notion of the moral equality of individuals. Consequentially there is no moral justification for partiality, a point made by Donaldson and Dunfee (1994). Faced with a choice between rescuing only one of two individuals, say, from a burning building, there is no compelling moral reason to choose your mother over an archbishop. This is particularly evident in Rawlsian accounts, where no group should be given preference. This leads Evan and Freeman (1988) to comment
The task of management in todays corporation is akin to that of King Solomon. The stakeholder theory does not give primacy to one stakeholder group over another, though there surely will be

But this is intellectually unsatisfactory. If stakeholder groups are all equally deserving then presumably by this account the shareholders of the company have no primacy over local community groups, or even communities which are remote and whose contact with the firm is tangential at best, unless, as they say, the firms survival is at stake. If it turns out that survival is a trump claim that will override others, we can imagine a backwards induction would be invoked. So the fear of a future contingency will lead to the adoption of a certain immediate policy. In practice, such a trump claim will look less Kantian, and very much like the prudential or instrumental approaches, as the key element in deciding between stakeholders would be their potential to threaten the survival of the firm. Apart from these nagging prudential urges, many standard accounts of moral theory exhort us to treat others equally.19 Still, most of us do, in fact, prefer those we love and are close to. Perhaps we should not do so. Alternatively, there are respectable philosophical arguments which support partiality (e.g., Friedman, 1989), and here I will cite two, based on intuitionism and interpretations of human nature. W. D. Ross (1930) believed that we have prima facie duties to others, and listed a taxonomy including notions of reciprocity, reparation, gratitude, justice, beneficence, and self-improvement. Now, certainly, justice is an impartial demand, which he terms a general obligation. On the other hand, reciprocity, reparation, and gratitude are actions directed to specific individuals by virtue of our past or present relationships. A debt of reparation stems from a past action to compensate others for the wrongs we have done them. If we incorporate this kind of list into the moral agent view, then we get a far clearer prescriptive element in stakeholder theory since we now have a way of adjudicating both the various claimants and their competing

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Kevin Gibson solve an ethical problem. Some commentators like Velasquez (1983) have dismissed this maneuver on the basis that only humans can be moral agents, understood as capable of foreknowledge and framing intentions. This is a critical element of the argument and would be a costly concession, since it seems to me that we would have to abandon the moral dimension of stakeholder analysis wholesale. It would mean that we could not consider the firm as anything but the collection of individuals who comprise it, and similarly, other group labels such as customers, suppliers or the local community have no standing other than as individual agents. It is feasible to treat business relations this way. Still, I believe that it fails to deal adequately with cases where we want to assign moral culpability (or praise) but we cannot find an individual who is personally responsible, or those where an individual is sincerely acting in role (that is, making a conscious decision to shelve his or her moral perspective while acting in role). Both of these cases seem to demand an analysis where we can address the morality of the organization as opposed to (or in addition to) that of the individual. Moreover, the weaker version of moral responsibility that I have presented avoids the awkward problem of assigning intentionality to a nonhuman entity. A further objection is that deontological analyses in general deal with the morality of people, and as such tend to be problematic when faced with issues dealing with animals or other nonhuman entities. 21 Under the framework I have proposed, theoretically human agents could conspire with corporate ones to harm a nonagent, such as animals or an ecosystem. This is a possibly serious problem, but no more so for stakeholder analysis than for humans in general. One benefit, at least, of treating corporate groups as moral agents in and of themselves is that it would allow them to take on a stewardship or advocacy role for non-agents. An example of this might be the voluntary adoption of, say, a tract of rain forest by an auto maker as a demonstration of commitment to the environment. This kind of act would be hard to justify on instrumental grounds, even under a standard stakeholder analysis. However, here it can be justified

demands. Take, say, a company that is undergoing a Reduction-In-Force (RIF). Usually it would indeed be a Solomonic task to work out what duties are owed to whom. My framework suggests that the corporation has duties both to individual and corporate moral agents; moreover, the primary duties will be those involving agents to whom something is owed or the corporation has injured. So a community which subsidized the corporation with incentives and the longtime loyal workers are more likely candidates for moral consideration than suppliers or remote individuals. Another way of legitimating partiality is by looking at human nature. John Cottingham (1991) has argued that it is necessary to be selfinterested in order to be well-placed before one can become magnanimous; in his words:
Rejecting a self-oriented conception of morality may lead to heroic sainthood for a tiny few; for the majority it entails a life of either hypocrisy or of neurotic self-flagellation. To base our ethics on a realistic anthropodicy . . . may, in the end, enable us to achieve a more practical and balanced view of the extent to which we can, and should, promote the welfare of mankind at large.20

To be sure, this view relies centrally on the agent being enlightened enough to be magnanimous rather than self-aggrandizing, and it is clear that we need to supplement the partialist accounts in developing a more complete theory of corporate action. Still, it is sufficient for my purposes to say that moral partiality is a philosophical possibility, and could be incorporated into a prescriptive account. In short, some agents favor other agents (as we typically find in family relations, for example) and therefore a stakeholder theory based on moral agency rather than groups in general could also show us why some stakeholders merit greater consideration than others, even if such favors have no immediate pay off in some instrumental way.

Likely objections The appeal to corporate personhood could appear to be invoking a metaphysical entity to

The Moral Basis of Stakeholder Theory on the comparatively simple grounds that the powerful have a moral duty of beneficence. It might be objected that ultimately stakeholder analysis is (at best) sugar-coated strategic thinking, that in fact businesses ultimately do care exclusively about the bottom-line. I cannot defeat a cynic, and certainly corporate actions can be interpreted in a number of ways. However, I would agree with Goodpaster (1991) in his analysis of the Poletown case where he concludes:
Most of us believe that management at General Motors owed it to the people of Poletown . . . to take their (nonfiduciary) duties very seriously, to seek creative solutions to the conflict, to do more than use or manipulate them in accordance with GMs needs only.22

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the nature and extent of duties to those affected by the firm. When we examine some of the embedded assumptions, it turns out that they involve an implicit notion of moral personhood. Although this assumption is not without its own problems, it appears that when we flesh out the theory it has two added benefits. The effect of dealing with moral agents is that it narrows the scope of concern to only those groups who are sufficiently like human moral agents, and by analogy we can then talk about the duties of business in the same way that we can talk about the duties of individuals. If this is the case, then standard arguments about ethical partiality will apply, and together these elements give us a framework for a prescriptive stakeholder theory.23

He is saying that we have a very strong intuition that stakeholder interests do matter in a very significant way. Our problem, as we have seen, is not to defend this intuition, but to be able to articulate it in a persuasive and prescriptive form. Finally, the claims about partiality are undeniably contentious, and this is not the appropriate place to resolve the issue. However, it seems to me that without this dimension of the argument a business has no clear way to distinguish competing stakeholder claims. The two options at present appear to be an appeal to the good nature and judgement of the management, or some supplemental consideration based on strategic concerns. The wisdom of Solomon sets the moral bar too high for most managers, and is impractical. However, using the analogy of friends and family (that is, partiality) resonates much more easily and does have immediate practical applications, although, as we have seen, it does require a theoretical acceptance of the notion of corporate personhood as workable.

Notes
In August 1998 a citation search of business journals revealed over 240 articles containing stakeholder in the title published since January 1996. There were over 20 articles about stakeholder theory in philosophical journals during the same period. 2 This is, of course, the essence of Pascal's famous wager. 3 See, for example, Patrick Primeaux and John Stieber, Profit maximization: The Ethical mandate of Business, Journal of Business Ethics 13(4) (1994), pp. 287294 for a more complete argument. 4 There are other approaches, of course. For example, Hill and Jones in an article entitled Stakeholder-Agency Theory use the terminology of stakeholders to discuss ways of restructuring the firm to make it maximally efficient. The firm is seen as a nexus of contracts between resource holders, and the question is one of how to achieve Pareto-type efficiency when there are many exchanges taking place. These discussions are essentially amoral ( Journal of Management Studies 29(2) (March 1992)). 4 Goodpaster, K. (1991), pp. 5373. 5 Goodpaster, K. (1991), p. 72. 7 Carroll (1993). 8 Freeman (1984), p. xx. 9 Freeman (1997), p. 73. 10 Donaldson and Preston (1995), p. 87. 11 Evans and Freeman (1988). 12 Beauchamp (1982), p. 309. 13 I should note that the exercise of reflective equilibrium is met with skepticism by some who believe
1

Conclusion The initial question in this paper was whether there is any moral justification for stakeholder theory. The answer is yes, and the three approaches presented will all go some way in underwriting that claim. Of the three, deontology offers the most promising way to describe

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Kevin Gibson
Broad, C. D.: 1930, Five Types of Ethical Theory (Routledge & Kegan Paul, London). Butler, J.: 1950, Five Sermons (Liberal Arts Press, New York). Carroll, A.: 1993, Business and Society: Ethics and Stakeholder Management (South-Western Publishing, Cincinnati). Cottingham, J.: 1991, The Ethics of Self-Concern, Ethics 101(4) ( July), 798817. Donaldson, T.: 1989, The Ethics of International Business (Oxford University Press, Oxford). Donaldson, T. and Dunfee, T.: 1994, Toward A Unified Conception of Business Ethics: Integrative Social Contracts Theory, Academy of Management Review 19(2), 252284. Donaldson, T. and L. E. Preston: 1995, The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, Academy of Management Review 20(1), 6591. Evan W. and R. E. Freeman: 1988, A Stakeholder Theory for the Modern Corporation: Kantian Capitalism, in T. Beauchamp and N. Bowie (eds.), Ethical Theory and Business (Prentice-Hall, Englewood Cliffs), pp. 97106. Feinberg, J.: 1970, The Nature and Value of Rights, Journal of Value Inquiry 4, 243-257. Foot, P. R.: 1958, Moral Beliefs, Proceedings of the Aristotelian Society 59. Reprinted in P. R. Foot: 1967, Theories of Ethics (O.U.P., Oxford). Freeman, R. E.: 1984, Strategic Management: A Stakeholder Approach (Ballinger, Boston). Freeman, R. E.: 1994, The Politics of Stakeholder Theory: Some Future Directions, Business Ethics Quarterly 4(4), 409421. Freeman, R. E.: 1997, A Stakeholder Theory of the Modern Corporation, in T. Beauchamp and N. Bowie (eds.), Ethical Theory and Business (PrenticeHall), pp. 6676. French, P.: 1979, The Corporation as a Moral Person, American Philosophical Quarterly 16 ( July). French, P.: 1984, Collective and Corporate Responsibility (Columbia U. Press, New York). Friedman, Marilyn: 1989, The Impracticality of Impartiality, Journal of Philosophy. Friedman, Milton: 1970, The Social Responsibility of Business Is To Increase Its Profits, New York Times Magazine (September 13). Gewirth, A.: 1978, Reason and Morality (University of Chicago Press, Chicago). Gibson, K.: 1995, Fictitious Persons and Real Responsibilities: Why Corporations Are Responsible For Everything They Do, Journal of Business Ethics 14, 761767.

it to be impractical. (See, for example, Friedman, Marilyn, The Impracticality of Impartiality, Journal of Philosophy (1989)). Quite how it would work for corporate agents needs greater explication than it is presently given. 14 See, for example, Bundy v. Jackson 641 F.2d.934 (1981), which concluded that a corporation had created or condoned a discriminatory work environment regardless of the loss of tangible benefits by employees. 15 The terminology she uses is adapted from Goldman, Alan: 1980, The Moral Foundations of Professional Ethics. 16 Werhanes argument asserts that groups, especially corporations, have moral obligations to members who delegate moral authority to the group. By extension, it could be asserted that stakeholder groups which further the aims of the corporation are owed reciprocal duties. 17 This classic example is derived from Godwin, William: 17561836, An Enquiry Concerning Political Justice, and Its Influence on General Virtue and Happiness. 18 Evan and Freeman (1988), p. 103. 19 So, for example, Bentham tells us that, each counts for one and no more than one (Introduction To the Principles of Morals and Legislation). Mill says that utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator (Utilitarianism); and, Kant says moral laws must hold for every rational being (Foundations of the Metaphysics of Morals). 20 Cottingham (1991), p. 817. 21 See, for example, Midgley, Mary, Duties Concerning Islands, Encounter LX (Feb.) (1983), who quotes Rawls as saying, We should recall here the limits of a theory of justice. Not only are many aspects of morality left aside, but no account can be given of right conduct in regard to animals and the rest of nature, (Theory of Justice p. 512). 22 Goodpaster (1991), p. 71. 23 I wish to acknowledge the editorial assistance of Michael Fabisch who died unexpectedly just after this article was accepted.

References
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The Moral Basis of Stakeholder Theory

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Marquette University, Department of Philosophy, Coughlin Hall 132, P.O. Box 1881, WI 53201-1881, Milwaukee, U.S.A.